THE CHANGING FACE OF THE FUNDS INDUSTRY

investor appetite for illiquid funds, such as alternatives, was rising, of which more than a quarter strongly agreed with the statement (see figure 8, page 12). For better or worse, investors are much happier than in the past to invest their money in assets that cannot quickly be sold. For purveyors of real estate, private equity and infrastructure funds, this is an encouraging trend. But, for those companies that are considering launching funds, where will the products be domiciled? Given the ongoing uncertainties surrounding Brexit, some have speculated that asset managers will avoid the UK as a domicile. It is true that relatively few of our respondents are considering launching UK-domiciled funds. Nearly half (49%) said they would not launch one in the next 12 months (see figure 9, include the macroeconomic environment we have had for the past decade, which has concentrated flows into a very small number of strategies ” SHIV TANEJA, PRINCIPAL, MARKET METRICS “On consolidation, I do not believe competition from low-cost passive funds is the only factor. Others

which respondents were asked which of the three elements of ESG (environmental, social or governance) was the most important. Governance gained a strong score with 41%, but it was the environmental aspect that won out, attracting 46% of responses. Respondents deemed the social element to be the least important. Alternatives After the 2008 financial crisis, when memories of lock-ups and frozen assets were still fresh, illiquid funds were shunned. Not so in 2018. A clear majority (69%) of respondents said that

managed funds” (44%) and “they should launch their own ETFs” (24%). Those who opted for “other” were asked to specify some alternative strategies. One respondent recommended partnerships with ETF providers; another proposed variable management fee structures to align with demonstrable alpha generation; another suggested active managers develop stronger governance of their holdings, presumably to demonstrate the stewardship they provide. The question of governance brings us to figure 7 (page 11), in

5. WHAT DO YOU THINK IS MOST LIKELY TO DRIVE CONSOLIDATION IN THE ASSET MANAGEMENT INDUSTRY?

Cost pressure due to regulation

82% Increased competitive pressure due to fee transparency/commission bans

60%

The challenge of passive funds such as exchange-traded funds (ETFs)

44%

Strategic partnership between traditional asset managers and boutique alternative investment fund managers A need for traditional asset managers to acquire specialist skills 39% 30% I don’t believe there will be more consolidation 3%

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